The 2023 RRSP deadline is closer than you think. And more Canadians tend to shift their contributions to this period to access a bigger tax fund. But before you join the rush, here are a few important points about the RRSP deadline:
When is the deadline for RRSP contributions?
The deadline for RRSP contribution for the 2022 tax year is March 1, 2023. If you delay your contribution past that day, you may miss out on the deductions advantage and increased tax refund in the spring.
What is the importance of meeting the deadline?
Meeting the deadline means you get all the immediate benefits associated with your tax return. And what is a bigger RRSP advantage than a tax refund?
What are the consequences of missing the deadline?
There are no grave consequences for missing the RRSP contribution deadline. What happens is that all remaining contribution room rolls over into your limit for the upcoming year. But, you cannot afford to miss the deadline if you want those contributions to reflect in your taxes for this year.
How much can I contribute to my RRSP?
You can either add up to 18% of your earned income, as reported on your tax return for the previous year (2021), or $29,210, whichever is less, into your RRSP account. You can also rollover any unused contribution room from previous years into your RRSP account.
How do RRSP tax deadlines work?
You can make RRSP contributions for the previous tax year within the first 60 days of the following year. The Canada Revenue Agency (CRA) adopts this timeframe to give you ample time to calculate your earned employment income in the last tax year. Note that your earned employment income determines how much you contribute.
Depending on when your contributions came in, you may get many RRSP contribution receipts during tax time. The first receipt covers all your contributions from March 2 to December 31, 2022. The extra receipts (if any) cover your contributions before the March 1, 2023 deadline.
Interestingly, you can file your taxes before getting your official RRSP receipts. Once you are sure of the amount you contributed, feel free to report it on your return. You will only need the official receipts for reference, especially during audits.
Automatic contributions can help you avoid deadline stress next year
Did procrastination get the better of you, forcing you to miss your RRSP contributions this year? No worries! You are part of the 60% of Canadians who postpone their contributions to two weeks before the deadline.
But you can avoid all that stress and the costs that come with it by automating things. Moreover, waiting until the last few weeks of the year to save means you miss out on possible compounding growth in your investment accounts.
Be intentional about meeting the deadline this year by setting up automatic contributions. With that, you have one less thing to worry about, plus you would most likely be richer come year-end.
Will my contribution affect my tax refund or the amount I’m owing? If yes, by how much?
Yes, your contributions will affect your taxes. Use an RRSP tax savings calculator to determine the extent of the effect.
How do I use my RRSP tax refund?
You can expect a considerable tax refund if you pay income tax and contribute to an RRSP in the year. Most Canadians see and treat this as free money, but it is actually the opposite. You gave the government a loan throughout the year, and the refund is your payback.
That said, your tax refund can go into anything and everything. For example, it can be your down payment on a new car or fund your vacation. But you should also consider the option of growing the money over the coming years by reinvesting it into your RRSP.
Act now to meet the RRSP Contribution deadline!
Whether you want to discuss your RRSP options, set up a new account, or make an additional contribution, your advisor is in the best position to help. Set up a meeting with us today.
